Grain output may pressure infrastructure

Wheat acreage is expected to increase in 2008 in some Southeastern states by more than 25 percent from 2006/2007 planting and harvest. Soybeans, especially in double-crop situations with wheat, are also expected to increase, as is corn at over $5.00 per bushel.

Where all these acres are coming from is a good question. If growers have a good cropping season, where all the grain is going may be an even better question.

Even average yields of wheat, corn and soybeans would stretch agriculture's transportation system to the limits — as was seen in 2007. A banner grain crop yield may just push it over the brink.

Norfolk Southern Corporation, one of the nation's largest railroad companies showed an increase in agriculture shipping — the only segment of their business to show an increase. Much of that increase came from shipping 136,000 boxcars of corn.

Overall, agriculture was a $1.08 billion business for Norfolk Southern. The biggest increase came in their ‘sweetener’ category, which includes ethanol. Ethanol shipments, alone, were up 43 percent from 2006 to 2007.

Dan Plonk, who is director of services and schedules for Norfolk Southern, says, “We had a very poor shipment consistency in 2007. We could not accurately predict the time of arrival for empty rail cars.”

The idle equipment time took a heavy economic toll on both the railroad and grain elevators, leading Norfolk Southern to institute a project they call Grain Network Re-Design. The re-working of railcar movements that takes grain from the Midwest to Alabama, Georgia, South Carolina, North Carolina, Virginia, Tennessee and Delaware and returns Southeastern grain to Midwest distributors is a work in progress, says Plonk.

His company's trains were able to move grain to and from the Southeast via what he calls the Heartland Corridor in an average of 13 days in 2007. The redesigned system is planned to cut that to 10 days in 2008 and hopefully to eight days in the future.

“Our company, from the CEO on down, is committed to making grain pickup and delivery more efficient,” Plonk says. “With the expected increase in grain production in the Midwest and Southeast, and the continued demand for transportation for ethanol, efficiency of storage and transportation will contribute significantly to the overall productivity of the grain sector of the country's agriculture industry.”

Bob Ingram, national sales manager for Norfolk Southern says the need for transportation for ethanol is almost a separate issue from grain. He notes that none of his company's rail terminals currently have ethanol storage. In 2008, he says an additional 80 cars will be assigned to Columbus, Ga., to move ethanol from a plant in Camilla, Ga.a, which is set to come on line this year.

Ingram says Norfolk Southern will move more than eight million gallons of ethanol in 2008 up slightly from 2007. He adds that an additional 80 railcars will be assigned in 2009 to Selma, N.C., to move ethanol from a plant scheduled to come on line next year.

Tim McNulty, who is director of marketing for CSX Transportation in Jacksonville, Fla., says, the expected increase in grain production nationwide strained the rail system in 2007 and will likely do so again in 2008, but the real test will come further down the line.

By 2020, McNulty says rail traffic will double and highway traffic will triple. In order to meet this demand, the rail industry must invest at least $135 billion dollars. By comparison, he says, to meet the expected increase in truck and automobile traffic, the highway system must invest $5 trillion.

“It will be difficult for the railroads to make the kind of investment needed to meet expected demand in the near future. On the other hand, it seems nearly impossible that our highway systems can make the kind of investments needed to meet this level of demand,” he concludes.

McNulty says the expected demand for shipping grain and other raw products is not necessarily the reason for increased pressure for shipping. It makes no difference, he says, whether we are shipping food and food products grown in the U.S. or imported into the U.S., these goods still have be moved from a central point to the places they are needed by the public.

Like Norfolk Southern, CSX is moving to increase the efficiency of their grain and ethanol shipments. CSX is moving from a 65-car train to a 90-car train to increase the efficiency of grain movements. However, McNulty points out that this is a slow transition, noting that only eight 90-car grain trains exist in CSX systems running from Alabama to North Carolina.

The price of efficiency isn't cheap. In 2007, the average cost of a railcar carrying agricultural commodities rose by 31 percent, compared to 18 percent for all cars. Ultimately the cost of moving commodities comes back, at least in part, to the farmer.

While growers in the Southeast are in a rare, if not unique, position of being able to choose among cotton, peanuts, wheat, corn, and soybeans to plant, knowing each is at the high end of historic 20-year price levels. On the other hand, the high cost of producing, storing and transporting these valuable commodities will surely erode the overall profitability of the 2008 crop.